Saturday, November 12, 2011

Naomi Klein on the Politics and Economics of Climate Change: Hit and Miss

Klein got her start, at least outside her native Canada, as a cultural critic in the wonderful book No Logo. Since then, with each project she has dipped further into economics, with a weird bifurcation: her political and cultural analysis has become even more insightful, but her understanding of economics has not kept pace. This was a problem in The Shock Doctrine, and it is a problem in her missive on climate change on view in the current Nation.

She is right that climate denialism has its roots in politics and psychology, not science, and that trying to make a serious response to the impending crisis look like business as almost usual (or even better than usual with green jobs for all) is misguided. No one really believes this. Dealing with a threat on this level means large-scale collective action, and its global ramifications require redistribution. I think Klein is exactly right that climate activists should accept the reality of the cultural divide and cook up effective strategies to deal with it.

But the economics is a mess. She rails against globalization, but this is a false target. The fundamental driver of carbon accumulation in the atmosphere is burning fossil fuels, and humanity has done this in ever greater quantities as the technology for extracting and converting these energy sources has developed. We have been doing it when there was less trade, more trade, and in-between trade. If we took the carbon-intensive industries in China that export to the US and moved them to North America, there would be hardly any difference in the planetary carbon trajectory. The bit about how much fuel is used to move goods between countries is a red herring. (I have been eating a lot of herring recently, but none of it is red. What gives?) Distances between countries are not necessarily greater than distances within them, and modes of transport matter more than kilometers. The carbon footprint of goods on a container ship chugging from China to the US west coast is less than short haul by truck. In any case, price carbon properly and the fuel/distance thing will sort itself out automatically.

Railing against economic growth is even more misguided. (1) The investments we need to make in a post-carbon future are enormous. A shrinking economy will not be able to afford them. (2) We also need to make investments in adaptation, since a lot of climate change is already baked in—literally. (3) There are billions of poor people around the world, and redistribution alone is not going to do the job, nor would there ever be a political base for such a level of collective sacrifice. (4) Our quality of life can be improved by doing much of what we do better: better food, better health care, a better built environment, even better gizmos. (5) Economic growth is measured in value, not stuff. Teaching someone how to play a musical instrument or a new language adds economic value. A well-crafted good that lasts a lifetime but costs more than a string of knock-offs that keep breaking down adds economic value. (6) If enviros denounce economic growth while the actually existing economy is stuck at stall speed and unemployment is rampant, they are clueless and deserve to lose.

Finally, she misses the key economic shift that has to take place for fast and effective reduction in greenhouse gas emissions: there has to be a permit system for taking fossil fuels out of the ground. Taxes are a start, but as I’ve argued in the past, they are weak tea compared to permits. (1) The debate over what’s the “right” tax takes us to the quagmire of calculating the social cost of carbon; the “right” number of permits is a matter of setting a quantitative emissions target for stabilizing the climate. (2) Tax increases will almost certainly overshoot: the level of tax necessary to get to a quantitative target will likely have to go beyond it. But because this increases the political problem of getting the tax approved, it makes reaching the target less likely. (3) Taxes can be gamed just as readily as any other kind of policy—perhaps more so because the link between the tax level (and all the loopholes and exemptions and credits) is obscure.

In any case, put a serious price on carbon by auctioning off permits, and the other policies, which are absolutely necessary, will follow. It is difficult to convince taxpayers to finance mass transit because driving is cheap. If driving becomes expensive, trains will look sexy. The same goes for the other investments we need to make in energy efficiency, urban redesign, infrastructure, R&D, etc. What’s so annoying about the Breakthrough Institute is that they have it exactly backwards: it’s not that there’s a groundswell for spending on economic redesign, but that we need a serious price on carbon to generate support for that spending.

Finally, I don’t see how mobilization to combat climate change will require more “planning”, at least in the economic sense. The uncertainties, qualitative factors and tacit knowledges that killed old-style planning are not going to disappear because we are struggling to decarbonize; if anything, in this transitional world they will be even greater. We will need more coordination, but that is a different matter. This calls for more participative institutions and less centralized, unaccountable power. That sounds “left” to me, but it has almost nothing to do with the vision of a planned economy. Yes, a public agency building a passenger rail system needs to plan, but so does a private corporation doing the same thing.

As I reread what I’ve written I fear I’ve come off as a curmudgeon, defending the sacred turf of economics against unlettered interlopers like Klein. That’s not it at all. I welcome everyone, whatever their background, to these issues, and I appreciate the new ideas I’ve picked up from people with vantage points different from mine. But Klein has remained stuck on a popular distortion of economics and uses her well-deserved influence to reinforce them. If political activists follow her down this road they will not just be wrong in some academic sense—they will waste the opportunities history is now handing them.

17 comments:

You are right on growth, but Klein is right and you are wrong on planning. A price on carbon whether in the form of taxes or auctioned permits is the weak tea. In this emergency planning in the form of public investment is what is needed, with a carbon price as reinforcement. Let's look sector by sector:

Transport. Long haul trucking: only technology we have today is electric freight trains. The problem of electrifying long haul trucks is a magnitude harder than electricfing cars. Trains don't come from a carbon price. Ground passenger transport. While electric cars have a role to play we don't have the resource for 7 billion electric cars world wide. That means trains, electric cars with short ranges for individual use, and sharing expensive resource intensive electric cars with long ranges. All 3 require higher density. So freight and ground passenger transport - public investment and regulatory change are more important than a carbon price - not that an auctioned permit system or carbon tax would not be useful reinforcement. But investment and C&C regulation without a carbon price can handle the emergency when it comes to ground transport. A carbon price without public investment and C&C regulation, not so much. Shipping and air travel - a carbon price is more important. But you still need regulation and public investment to force changes in airports and water ports that save emissions while planes are on the ground or ships are in port. Plus high speed rail and universal broadband are two public investments that can help a lot to reduce air travel. Next sector in next post.

Building Sector: again lots of reasons you have poor elasticity in response to price increases. Plus lots of positive externalities in greening buildings that often can't be capture by people who would make investment. Building and office appliance rules have huge record of effectiveness. Public investment can also be useful because a government will often have a longer time horizon on returns that a resident owner, resident tenant, business owner or business tenant. So again in building sector C&C and public investment are the main tools. Price is a useful secondary reinforcement.

Third sector: electricity - regulations that require utiltities to buy renewable energy at minimum specified price, and renewable portfolio standards are most effective means here. Also public investment in improved transmission, distribution and demand management tech. Price is again secondary.

Industrial use of fossil fuels. Price is primary. Too much diversity for regulations or public investment to be primary. C&C regs in certain areas can provide valuable reinforcement.

However, when it comes to other industrial gas such as F gases regulation overwhelming more effective. Also material intensity issue, indirect emission, regulations on solid waste and water use and water pollution plus end of life responsiblity by manufacturers for their goods critical .

Agriculture and forestry - measurement highly uncertain. Not so much snapshots as baseline. Though in some cases even snapshots can be very expensive to accurately. Also real question as to whether snapshots always get sign right. Have to control means rather than ends which is an overwhelming argument for C&C.And since agriculture and forestry are heavily subsidized major room for zero cost changes through subsidy shifting.

Waste management - controversial. I'd say price and regs 50/50. For example methane capture and burning. But often you don't capture all of it. So a rule minimizing methane generation requiring capturing and burning as much as possible may be more effective than a price on methane. But a price on unburned methane may help encourage compliance with such rule.

I agree with you on a technical level, but the issue is really political economy, isn't it? In order for technical change to take place someone has to have an interest in pursuing it. At the moment, the only reason to sink serious time and money in the kinds of alternatives you talk about is a vague premonition that we will have an aggressive climate policy in the future. That's not enough. What we need is an aggressive policy in the present, in reality. Make transport, electricity etc. prohibitively expensive with fossil fuel use, and the impetus to create alternatives will not be a problem. That's how prices are supposed to work, yes?

A price is also policy in the present. My point is the a high price won't get us trains or insulated buildings or wind generators. Trains don't make autos or trucks expensive. They provide an alternative.

I suppose a price my provide incentive to fund trains and so on. But then it also provides incentive to repeal the price. Given limited political energy it makes more sense to fight for things like trains that tackle the problem directly than things like price which mostly tackles in indirectly. Especially since just about every survey from the 80s to present shows public investment and C&C regulation is more popular than a carbon price. C&C and public investment is better policy and more popular. Why prioritize price?

It would be a huge detour to get into a discussion of The Shock Doctrine, especially via comments. Still, I made a swipe and you deserve an answer. The very shortest answer I can think of is that Klein excised a big part of the economic context of the neoliberal tide of the 1980s, the cul-de-sac of import substitution industrialization (ISI), especially in Latin America. This policy framework had its pluses, but the accumulation of its contradictions was a large part of the 1982 debt crisis. There was a justified sense that "we can't go on like this", quite apart from the machinations of the Mont Pelerin crowd. Any policy has to be evaluated in relation to its alternative, and the breakdown of ISI made neoliberalism look plausible. The real issue is, was there a different way altogether, neither ISI nor Friedmanite -- but that wouldn't fit Klein's schema.

There are more detailed issues, but this is the 800-lb guy in a monkey suit....

Agreed, the price itself is not the solution. On a mechanical level, the permits are, but of course we need the other stuff you describe in order to maintain a good quality of life under a permit regime. (The regime won't last otherwise.) The role of the price is to provide an incentive for investment in everything else.

Why start with the price? Actually, I wouldn't; I'd start with the permits. Have a strictly scientific rationale for the permit level and make that the discourse. The price comes from auctioning them off. So the auction does two things: it recaptures for the public the value of the permits, and it creates the incentive for other policies. Why not start with trains? We've been trying that for decades, but almost every referendum is voted down, because people think "why should I tax myself for trains when I'd rather drive everywhere?"

Perhaps i'm too much of a cynic but when I read Economists extolling the virtue of 'Flexible Labour Markets' et al I see them as purely ideological. They'll then use any excuse to implement their policies, be that inflation (1970s), ISI as you outline or even 'periods of stability"!

To clarify my own bias, I'm the Union Rep for my section of engineers at work in Ireland and our wages and conditions have been attacked relentlessly for the past three years even though revenue has increased every year up to 10% last year.

Every economist one hears in Europe now talks about 'structural reforms' necessary in the PIIGS, which is just code for an attack on Unions, wages and workers.

Increasing profits is an institutional imperative for companies and so they're hiding behind economic theory as an intellectual bulwark outlining necessary pain needed through austerity meanwhile profits have recovered to near pre-2008 levels. http://socialisteconomicbulletin.blogspot.com/2011/10/relation-of-profits-and-austerity.html

When people see this it's easy to buy Klein's 'popular distortion' thesis, although I believe it is only about half the story.

Good point, KC. As I've tried to say in recent posts, the "reform" agenda in the PIIGS has nothing to do with the debt imbroglio; it really is a matter of ideology and what Levi-Strauss (I think it was him) called "ritual equalization". (The "deadbeats" have to impose a ritual loss on themselves to be seen to be worthy of aid, not that they get to keep any of it anyway...) If you really wanted to get at the underlying causes of the crisis, in the case of Ireland you would inquire into the excessive growth of finance, the real estate bubble, the failure of the export platform model, etc., yes? (I'm not an expert.)

The reason why it really matters that Klein leaves out the failures of pre-neoliberalism is that it disarms her troops in advance. They will be unprepared for the position that neolibs are likely to push.

Here's the thing Peter, if Naomi Klein has 'Troops' and they use her book as some sort of bible then that's the greatest problem! It's bad enough that we have a marxist religion without a kleinest one too....

On Ireland: Low tax, giving away our natural resources and weakened corporatised trade unions were a huge problem too. All this on a failure to build our own industry a century ago (a legacy of Colonialism). But yes Finance really came to town and partied, hence the depth of our problems.

We've now got high unemployment(15%), disposable income for those working is being taxed away to bail out the banks and pay all the zombie bank's bondholders, all the while banks are refusing to lend because there is a serious issue of aggregate demand and so the spiral is downward.

In Europe they look at us and say, "well done Ireland best kids in the class, here's your lollipop" while big investment funds line up for our soon to be privatised public companies.

I'm no expert either, by the way. That's just how it looks to me form here!

Peter, permits won't get you trains. Way too large an investment for private companies to make without massive long term subsidies. Permits won't make buildings more efficient. Right now lots of opportunties for building efficiency are ignores. Permits without public investment or feed-in tariffs in the electricity field are likely to get you nukes, because they are more flexible in location than renewables and don't require as extensive new transmisison. And since nukes are baseload you end up with a trap where you still need transmission for any possible low carbon form of shaping but don't have it. Start from the other end - by directly require the things we know we need. That will give you huge short term cuts in emissions and low carbon alternatives to business as usual. Make a carbon price or permit system your second bite of the apple. Much less resistance once alternatives are in place. If you can do both at the same time, great, but otherwise public investment and regs are your priority if you want your emission cuts front loaded.